Brazil vs. Portugal in Race for Vivo

RIO DE JANEIRO – The covert battles among the venerable and respected brand names of Europe in the scramble to get a foot-hold in booming Brazil inevitably claims casualties, and this week saw Spanish telecommunications giant Telefônica emerge as a distinct loser at the conclusion of a deal in which the company finally secured an expensive stake in Brazil’s rapidly expanding mobile operator Vivo.

Roberto Lima, President of Vivo, pictured earlier this year, photo by Agencia Brasil.

Spain’s Telefônica chiefs appear to have been given a blank check in their pursuit of Vivo, Brazil’s largest mobile carrier and a communications company on the rise as the country’s improving performance puts more money in the pockets of average Brazilians.

After Portugal Telelcom spurned their former Spanish partners’ initial attempt to buy them out of Brazilian telecommunications, which amounted to €5.7 million, analysts were in the main not paying much attention. Their interest was, however, piqued when that offer was lifted twice again, first to €6.5 billion and then to 7.15 billion, a number that anyone close to the deal was calling outrageously high.

PT’s shareholders were, according to The Economist magazine, naturally excited, and when a three-quarters ‘aye’ vote was returned, those who stood to make a lot of money must have been understandably dismayed when the Portuguese government unexpectedly blocked the deal, saying that to let go of a golden share in a fast growing communications company in a similarly fast growing region was counter to the nation’s interests, especially given the current less-than-bull economic conditions in Europe.

PT and Telefônica have been battling over Vivo for some time now, image by Jaylan Boyle.However, the Portuguese government was conspicuously quick to fall away without a murmur from that position when Telefônica threw in a further €350 million, and Spain is now a officially a major player in the Brazilian telecommunications market, though it’s shareholders can be certain that they massively overpaid to get there.

The news at Vivo is, unsurprisingly, very good. On the back of the Telefônica deal, Vivo’s second quarter profits shot up by thirty percent. As the company’s net income jumped, the perceived savings and sundry benefits that Telefônica will bring to Vivo by integrating it’s fixed line expertise is expected to push share prices further still.

Based in São Paulo, Vivo has increased it’s customer base by twenty percent from last year, ending the quarter with 56 million Brazilian subscribers. The company’s share of the nations’ mobile business rose to thirty percent as well, up one point from last year’s 29 percent.

Though Portugal Telecom would appear to have taken the money and left Brazil, the timely recapitalization has in fact allowed the company to stay in the region, albeit with what some analysts are describing as a second-rate asset compared with the muscular Vivo. PT has in fact purchased a 22 percent share in Oi, and while the company is recognized as the country’s largest telecommunications business, it carries a sub-standard mobile infrastructure. Many predict that this will force Oi to pursue discounting as a means of luring customers, which will in turn damage its well entrenched landline business.

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